SRG Housing Finance Q3 FY26: Growth Momentum Masks Valuation Concerns

The stock, currently trading at ₹268.10, has underperformed significantly over the past year, declining 18.39% whilst the Sensex advanced 7.07%, resulting in a negative alpha of 25.46 percentage points. The company's expensive valuation multiples, combined with deteriorating technical indicators and below-average quality metrics, have prompted analysts to issue a "Strong Sell" recommendation, raising questions about whether the operational growth story can justify the premium valuation.

Financial Performance: Strong Top-Line Growth with Margin Pressure

In Q3 FY26, SRG Housing Finance delivered net sales of ₹47.54 crores, representing a sequential growth of 5.81% from Q2 FY26's ₹44.93 crores and a robust 28.35% year-on-year expansion from ₹37.04 crores in Q3 FY25. This marks the company's highest quarterly revenue on record, underscoring sustained loan disbursement momentum in its core Rajasthan market. The nine-month performance for FY26 shows net sales of ₹131.64 crores, up 27.01% from ₹103.61 crores in the corresponding period of FY25.

However, the profitability narrative reveals nuanced challenges. Whilst net profit of ₹8.21 crores in Q3 FY26 represents a commendable 43.00% year-on-year increase from ₹5.74 crores, the sequential decline of 0.49% from Q2 FY26's ₹8.25 crores suggests margin compression. Operating profit (PBDIT) excluding other income stood at ₹31.23 crores with a margin of 65.69%, marginally improved from Q2 FY26's 65.19% but notably lower than Q3 FY25's 65.04%. The PAT margin of 17.27% in Q3 FY26, whilst healthy, declined from Q2 FY26's 18.36%, indicating rising operational costs.

Employee costs surged to ₹12.74 crores in Q3 FY26, up 31.61% year-on-year from ₹9.68 crores, reflecting aggressive expansion and talent acquisition. Interest expenses climbed to ₹20.11 crores from ₹16.51 crores in Q3 FY25, a 21.81% increase, driven by higher borrowing costs in a rising rate environment. The tax rate of 20.98% in Q3 FY26 remained stable, suggesting efficient tax planning despite the operational cost pressures.

Asset Quality and Capital Efficiency: Concerns Emerging

SRG Housing Finance's return on equity (ROE) of 13.64% on an average basis, whilst positive, lags behind several housing finance peers and reflects moderate capital efficiency. The latest ROE of 9.66% shows further deterioration, raising concerns about the company's ability to generate attractive returns on shareholder capital. The return on capital employed (ROCE) of 10.32% similarly underscores the challenges in deploying capital profitably in a competitive lending environment.

The balance sheet reveals a company in aggressive growth mode. Shareholder funds expanded significantly to ₹263.95 crores in FY25 from ₹159.67 crores in FY24, driven by retained earnings and a modest equity infusion. Current liabilities surged to ₹606.41 crores from ₹512.35 crores, reflecting increased borrowings to fund loan disbursements. The company maintains a debt-to-equity ratio of 2.45, which, whilst manageable for a housing finance company, represents higher leverage compared to select peers.

Cash flow dynamics paint a concerning picture. In FY25, the company reported negative operating cash flow of ₹131.00 crores, driven by a substantial ₹160.00 crores increase in working capital requirements as loan disbursements accelerated. This was offset by financing cash inflows of ₹172.00 crores, primarily from increased borrowings. The negative operating cash flow trend, persistent over multiple years, highlights the capital-intensive nature of the growth strategy and raises questions about long-term sustainability without continuous external funding.

Valuation Analysis: Expensive Multiples Defy Fundamentals

SRG Housing Finance currently trades at a price-to-earnings (P/E) ratio of 16.00x on a trailing twelve-month basis, representing a premium to the housing finance sector average P/E of approximately 12.00x. The price-to-book value (P/BV) multiple of 1.51x, whilst lower than several peers, appears stretched given the company's below-average quality grade and weakening return metrics. The PEG ratio of 5.80 is particularly concerning, suggesting the stock is expensive relative to its growth prospects.

The company's valuation grade has oscillated between "Expensive" and "Very Expensive" throughout recent quarters, with the current assessment firmly in "Expensive" territory. At ₹268.10, the stock trades 27.89% below its 52-week high of ₹371.80 but only 6.56% above its 52-week low of ₹251.60, indicating limited downside cushion. The EV/EBITDA multiple of 10.46x and EV/Sales multiple of 6.34x further underscore the premium valuation, particularly when juxtaposed against the company's modest ROE and high leverage.

The dividend yield is not applicable, as the company last paid a dividend of ₹0.20 per share in March 2015, over a decade ago. This absence of shareholder returns, combined with the expensive valuation, limits the investment appeal for income-focused investors. The enterprise value to capital employed ratio of 1.15x suggests the market is pricing in significant future growth, a bet that appears increasingly risky given the deteriorating return metrics.

Industry Leadership: How SRG Housing Compares to Peers

Within the housing finance sector, SRG Housing Finance occupies a unique position as a micro-cap player focused on the Rajasthan market. Its peer group includes larger, more established names such as Home First Finance, Aavas Financiers, India Shelter Finance, Repco Home Finance, and GIC Housing Finance. The comparative analysis reveals both strengths and vulnerabilities in SRG's positioning.

SRG Housing's ROE of 13.64% positions it favourably against most peers, trailing only India Shelter Finance's 13.95%. However, the company's P/E multiple of 15.61x, whilst lower than premium peers like Home First Finance (24.68x) and Aavas Financiers (21.03x), appears elevated compared to Repco Home Finance (5.46x) and GIC Housing Finance (5.83x), which trade at significant discounts. The P/BV ratio of 1.51x offers relative value compared to the peer average of approximately 2.00x, but this discount reflects the market's concerns about quality and growth sustainability.

The debt-to-equity ratio of 2.45 sits comfortably within the peer range, lower than Aavas Financiers (3.29) and GIC Housing Finance (4.52) but higher than India Shelter Finance (1.88). The complete absence of dividend payments contrasts sharply with peers like GIC Housing Finance (2.76% yield) and Repco Home Finance (1.62% yield), highlighting SRG's focus on reinvesting profits for growth rather than returning capital to shareholders.

Shareholding: Stable Promoter Base with Minimal Institutional Interest

The shareholding pattern of SRG Housing Finance reveals a promoter-dominated structure with virtually no institutional participation. As of December 2025, promoter holding stood at 59.06%, a marginal decline of 0.05 percentage points from September 2025's 59.11%. The more significant change occurred between March 2025 and December 2024, when promoter holding dropped from 64.79% to 59.13%, a 5.66 percentage point reduction, likely due to equity dilution or stake sales.

The complete absence of foreign institutional investor (FII), mutual fund, and insurance company holdings—all at 0.00%—represents a significant red flag. Institutional investors typically conduct rigorous due diligence before committing capital, and their absence suggests concerns about the company's scale, liquidity, governance, or growth prospects. The non-institutional shareholding of 40.94% has gradually increased, rising from 35.20% in December 2024, indicating retail investor interest but lacking the validation that institutional participation would provide.

Positively, there is no promoter pledging, eliminating concerns about financial distress or forced selling. The promoter group, led by Vinod Kumar Jain (20.49%), Archis Jain (7.50%), and Seema Jain (5.51%), maintains a stable ownership structure with multiple family members and group entities holding stakes. This concentrated ownership provides strategic continuity but raises governance questions typical of family-controlled enterprises.

Stock Performance: Prolonged Underperformance Across Timeframes

SRG Housing Finance's stock performance has been disappointing across most recent timeframes, with the share price declining 18.39% over the past year whilst the Sensex gained 7.07%, resulting in a negative alpha of 25.46 percentage points. The underperformance has been particularly acute in recent months, with the stock down 3.58% over the past week, 4.10% over one month, and 8.65% over three months, consistently trailing the broader market.

The six-month return of -13.81% against the Sensex's +3.77% gain highlights the severity of the recent correction. Year-to-date, the stock has declined 9.47%, significantly underperforming the Sensex's -1.92% decline. The housing finance sector itself has delivered a robust 27.65% return over the past year, meaning SRG Housing has underperformed its sector by a staggering 46.04 percentage points—a clear indication that company-specific concerns, rather than sector headwinds, are driving the weakness.

On a longer-term basis, the stock has delivered positive absolute returns, with a three-year gain of 34.72% and a five-year return of 64.23%. However, even these longer-term returns have marginally trailed the Sensex, generating negative alpha of 3.41% and 0.52% respectively. The 10-year return of 257.47% represents solid wealth creation, outperforming the Sensex's 239.52% gain by 17.95 percentage points, suggesting the company has historically rewarded patient long-term investors despite recent setbacks.

From a technical perspective, the stock trades below all key moving averages—5-day (₹281.21), 20-day (₹281.89), 50-day (₹277.19), 100-day (₹289.30), and 200-day (₹299.48)—indicating sustained selling pressure. The current trend classification of "Mildly Bearish" since December 19, 2025, reflects the ongoing correction from the 52-week high of ₹371.80. With immediate support at ₹251.60 (the 52-week low) only 6.56% below current levels, the downside cushion appears limited.

Investment Thesis: Quality Concerns Overshadow Growth

The investment thesis for SRG Housing Finance presents a classic conflict between operational growth and valuation reality. The company's positive financial trend, marked by record quarterly revenues and healthy profit growth, demonstrates execution capability in its niche Rajasthan market. The nine-month FY26 performance, with net sales of ₹131.64 crores (up 27.01% year-on-year) and sustained profitability, validates the business model's viability in an underserved regional market.

However, multiple structural concerns undermine the investment case. The below-average quality grade, driven by a weak average ROE of 13.64% and deteriorating latest ROE of 9.66%, suggests the company struggles to generate attractive returns on shareholder capital despite top-line growth. The complete absence of institutional holdings—zero participation from FIIs, mutual funds, and insurance companies—raises questions about governance, transparency, or growth sustainability that have deterred sophisticated investors.

The valuation disconnect is particularly troubling. With a P/E ratio of 16.00x (premium to the sector average of 12.00x) and a PEG ratio of 5.80, the market is pricing in aggressive future growth that appears increasingly difficult to justify given the margin pressures, rising costs, and competitive intensity in the housing finance sector. The expensive valuation grade, combined with mildly bearish technical indicators and high beta of 1.50, suggests significant downside risk if growth disappoints or if sector sentiment deteriorates.

Key Strengths & Risk Factors

Outlook: What Lies Ahead

The forward outlook for SRG Housing Finance hinges on the company's ability to address the fundamental disconnect between operational growth and deteriorating return metrics. The housing finance sector in India continues to offer attractive growth opportunities, particularly in underserved tier-2 and tier-3 markets where SRG operates. However, intensifying competition from larger, better-capitalised peers and rising funding costs in a potentially prolonged high-rate environment present significant headwinds.

Investors should closely monitor quarterly ROE trends, as any further deterioration would validate concerns about unsustainable growth. The company's ability to attract institutional shareholders would provide critical validation of its governance and growth story. From a valuation perspective, a correction to a P/E multiple of 10-12x (in line with sector averages) would represent a 25-37% downside from current levels, suggesting significant risk for new investors at prevailing prices.